In his latest response to Paul Krugman on inequality, Greg Mankiw says:
Even if rising inequality is exogenous, the government could still respond to it by making the tax code more progressive. That is a coherent policy viewpoint, driven as much by political philosophy as economics, about which reasonable people can disagree. I am the first to admit that the study of economics by itself does not tell you how to balance efficiency vs equality. And it certainly does not tell you whether it is more noble to be an egalitarian or a libertarian.
Many economists—even super-smart ones like Mankiw—think that efficiency and equality are contraries rather than complements and that libertarianism isn't a form of egalitarianism. This philosophical muddleheadedness of economists makes the policy debate frustratingly obtuse. But the fault really lies with philosophers, who usually think the same things. It's sort of neat, in a bad way, how oppositions like “efficiency vs equality,” partly the fruit of philosophers' embarrassing economic ignorance, get repeated by economists.
Krugman is apparently obsessed with nominal inequality, the difference in the size of people's money incomes. There is no doubt that there is increasing nominal inequality. But it is almost completely mysterious why nominal inequality ought to concern anyone. I wish people like Mankiw would stop acting like it's worth caring about. It just isn't.
I think part of the problem is that nominal inequality is confused with material inequality—differences in material living conditions. But while nominal inequality is increasing, material inequality continues to decrease. As market competition pushes prices down, goods at the bottom of the price range more and more closely approximate goods at the top of the price range. (Which is why efficiency and equality are complements.) Food is probably the most striking example of material equalization. If you compare the diets of the top and bottom quintiles 100 years ago with the diets of the top and bottom quintiles now, you'll see that we have become immensely more equal, not less. My favorite pair of jeans, which I bought at Wal-Mart for $16, is a close substitute for jeans that cost 5 times more.
The trend toward material equality in market societies helps explain several trends, such as the increasing value of good design. Substantive equality leads us to value aesthetic differentiation ever more highly. But even good design trickles down. Which is one reason why material equalization makes it ever harder to signal status and why the materially status-conscious (many of them ideological egalitarians!) are willing to pay an increasing premium to claim inherently scarce and strongly status-signaling positional goods, like spots at Ivy League schools, apartments with Central Park views, or what have you. The feverishness with which high school kids (and their parents) compete for scarce Ivy League slots is an indication of the drive to have something everyone can't have in an egalitarian world where even the modestly remunerated can have most everything.
But why give a crap about material equality anyway? Why is it something we ought to aim at? What purpose does it serve? I care a great deal that people have enough in material terms to realize their basic capacities and to implement the projects that give their lives meaning. I certainly don't think we're there yet. For instance, by putting a wall between education and market feedback mechanisms, we have created an apartheid system that ensures that millions of the poorest among us don't fully develop some of their crucial basic capacities, trapping them and their children (who will go to the same terrible schools) at the bottom of the pile. The point is not that schools need to be more equal, but that schools for the least well-off need to be as good as my $16 Wal-Mart jeans.
If you think money translates into political power, and that inequalities in political power are objectionable, then you're right! Inequalities in political power are objectionable. People with political power can oppress people in a way that people with just money can't. Libertarianism (used to be called “liberalism”) is, by the way, the egalitarian political philosophy that says that inequalities in political power should be minimized. And libertarianism tells you how to get money out of politics: take political power off the auction block by restricting political power to narrow limits.
No doubt a great deal of material inequality can be socially destabilizing. Hey, there's a good reason to care! But we're getting more, not less, materially equal. Fixation on nominal inequality leads some on the left to make absurd dark comments to the effect that the plump middle class will soon storm the streets wielding sharp barbecue implements unless the median wage keeps pace with productivity growth. Absurd. Some folks like Richard Wilkinson say material inequality as such makes us sick, or, like Robert Frank, that we're so hopelessly status-conscious that we can't help but be aggrieved by the success of others. Neither argument is very persuasive, for reasons Fly Bottle readers are probably already tired of hearing me rehearse.
Anyway, if anybody really cared about equality or sufficiency, they would be agitating to build a market in education. Union participation and the progressivity of the tax code are distractions (except insofar as unions are the chief antagonist in the fight to end educational apartheid.) Here is battle cry: Equality through efficiency! Equality through liberty!
Will Wilkinson 